Tokenised Securities in APAC – A State of Play

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Introduction

ASIFMA’s 2021 overlay provides a concise supplementary update to the 2019 paper with some key recent developments and emerging trends that have since happened in the Tokenised Securities space.  It covers the key aspects of the end-to-end Tokenised Securities lifecycle (i.e., structuring, issuance, distribution, primary listing, secondary trading, custody, portfolio management, advisory and market making) and how it compares to that of traditional securities. It also outlines how tokenisation could impact market participants (including incumbent financial institutions and issuers) and presents areas where gaps exist from a technology, regulatory and ecosystem perspective.

As stated in the 2019 paper, Tokenised Securities are generally thought of as traditional, regulated securities, but with a digital wrapper. This paper intends to capture what the different market participants think about the current and future state of Asia’s Tokenised Securities market and ecosystem, what are the remaining challenges and gaps, and discusses some notable success stories and use cases that have happened recently in the arena.

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Executive Summary

There were numerous positive developments in the tokenised securities space over the last 18 months. Market participants have come a long way in understanding the advantages of tokenised securities. There have been successful Proof of Concepts (PoCs) within firms as well as on a multi-party basis. Regulators too have generally been starting to acknowledge the benefits of tokenisation and in several jurisdictions have accommodated sandboxes to support practical experimentation, and have been reviewing their frameworks and issuing new licenses. Due to the trend towards digitisation of financial assets and the opportunities of tokenisation on the global financial markets, we have also seen the entry of traditional financial institutions into the digital assets space which will greatly help the tokenisation space and the progress of the industry.

Despite all these positive developments there are still many challenges that need to be addressed before we will see tokenised securities in “Main Street”. Many of the remaining challenges are in the regulatory space, ranging from a lack of inter-jurisdictional harmonisation and taxonomy to historical paper-based requirements and processes, to the exclusion of retail investors. We recommend that regulators continue to work together and with the industry to provide harmonised guidance on the classification and recognition of Tokenised Securities, continue to further explore regulatory sandboxes for full value chain experimentation and continue to remove archaic paper-based requirements that undermine the full adoption of tokenised securities across the entire lifecycle.

From an ecosystem perspective, further education, collaboration and experimentation is needed to address the talent and liquidity gaps and reduce friction in a fragmented ecosystem. This might enable large marquee transactions which could encourage faster adoption.

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